The management of Villanueva Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows:
Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor, Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year.
Required:

Question

The management of Villanueva Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows:
  Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor, Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year.
Required:

Quizplus · Accepted Answer

The Answer of The management of Villanueva Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows:
  Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor, Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year.
Required:

The Management of Villanueva Industries Has Been Evaluating Whether the Company